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Income Tax Appellate Tribunal, “B” BENCH : BANGALORE
Before: SHRI N V VASUDEVAN & SHRI G MANJUNATHA
Per N.V. Vasudevan, Vice President
This appeal by the assessee is against the order dated 30.8.2019 of the CIT(Appeals)-6, Bengaluru relating to assessment year 2016-17.
The only issue that arises for consideration in this appeal is as to whether a sum of Rs.76,17,450 which was interest earned by the assessee on surplus funds available with it is eligible for deduction u/s. 80P(2)(a)(i) or 2(d) of the Act.
Under section 80P(2)(a)(i) of the Act, in the case of a co-operative society engaged in carrying on business of banking or providing credit facilities to its members, the whole of amount of profits & gains of business attributable to carrying on business of banking or providing credit facilities to its members is allowed as deduction in computing total income.
4. Under section 80P(2)(d) of the Act, income by way of interest or dividend derived by a co-operative society from its investments with any other co-operative society, the whole of such income is entitled to deduction.
5. It is not in dispute before us that the assessee is a credit co- operative society carrying on business of providing credit facilities to its members. The assessee received interest income of Rs.76,17,450 on the following investments :-
Sl.No Name of the Bank Amount of interest 1 Janatha Co-op Bank 27,84,738 2 Janatha Seva Co-op Bank 45,10,933 3 B.D.C.C. Bank(Co-op Bank) 1,31,099 4 Apex Bank(Co-op Bank) 20,639 5 P.M.C. Bank(Co-op Bank) 1,14,020 6 B.C.C. Bank(Co-op Bank) 21,248 7 Suda Co-op Bank (Co-op Bank) 31,943 ... 8 Yasashwini Arogya fee 2,830 76,17,450
It can be seen from the aforesaid Chart that the interest received from the Assessee was from co-operative banks. The AO took the view that interest income earned by the assessee was in the nature of income from ‘other sources’ and therefore deduction u/s. 80P(2)(a)(i) should not be allowed. According to him, the amount that is eligible for deduction u/s. 80P(2)(a)(i) should be the profits & gains of business attributable to business of providing credit facilities to its members. In coming to the aforesaid conclusion, the AO placed reliance on the decision of the Hon’ble Supreme Court in the case of Totgars Co-operative Sale Society Ltd. v.
ITO [2010] 322 ITR 283 (SC) wherein it was laid down that interest income earned on investments was assessable u/s. 56 of the Act under the head income from ‘other sources’ and therefore not eligible for deduction u/s. 80P(2)(a)(i) of the Act.
As far as deduction u/s. 80P(2)(d) of the Act is concerned, the AO took the view that the said section will apply only if interest income is received from a co-operative society and since the interest income received by the assessee was on investments with co-operative banks, the assessee would not be eligible to deduction u/s. 80P(2)(d) of the Act. In this regard, the AO also made a reference to provisions of section 80P(4) of the Act, which provided that provisions of section 80P shall not apply to co-operative banks governed by the Banking Regulation Act, 1949.
The AO also placed reliance on the decision of the Hon’ble High Court of Karnataka in the case of DCIT v. Totgars Co-operative Society, 395 ITR 611 (Karn) wherein it was held that interest on investments retain the character of income from ‘other sources’ and therefore deduction u/s. 80P(2)(a)(i) of the Act will not be available because the income was not attributable to business of providing credit facilities to members. For the aforesaid reasons, he denied the deduction u/s. 80P(2)(a)(i) of the Act.
On appeal by the assessee, the CIT(Appeals) confirmed the order of AO, hence this appeal by the assessee before the Tribunal.
We have heard the rival submissions and we find that there are contrary judgments of Hon’ble High Court of Karnataka on this issue. This aspect has been discussed by the ITAT “A” Bench in & 3390/Bang/2019 in the case of The Jayangar Co-operative Society Ltd. v. ITO, order dated 07.02.2020 wherein this Tribunal restored the issue to the AO for fresh consideration with the following observations :-
We have considered the rival submissions. First of all, we repro& para 5 of the Tribunal order cited by learned AR of the assessee having been rendered in the case of M/s. The Jayanagar Co-operative Society Ltd., V. ITO (supra). This para reads as under:- “5. While learned AR relied on the decision of the Hon’ble Karnataka High Court in the case of Tumukur Merchants Souharda Credit Co-operative Ltd., 230 taxman 309 (Karn), the DR relied on a subsequent decision of the Hon’ble Karnataka High Court in the case of PCIT Vs. Totgars Co-operative Sale Society Ltd., 395 ITR 611 (Karn.). We have carefully gone through the said judgment. The facts of the case before the Hon’ble Karnataka High Court was that the Hon’ble Court was considering a case relating to Assessment Years 2007-08 to 2011-12. In case decided by the Hon’ble Supreme Court in the case of the very same assessee, the Assessment Years involved was Assessment Years 1991-92 to 1999- 2000. The nature of interest income for all the Assessment Years was identical. The bone of contention of the Assessee in AY 2007-08 to 2011-12 was that the deduction under Section 80P(2) of the Act is claimed by the respondent assessee under Section 80P(2)(d) of the Act and not under Section 80P(2)(a) of the Act which was the claim in AY 1991-92 to 1999- 2000. The reason given by the Assessee was that in AY 2007-08 to 2011-12 investments and deposits after the Supreme Court's decision against the assessee Totgar's Co-operative Sale Society Ltd. (supra), were shifted from Schedule Banks to Cooperative Bank. U/s.80P(2)(d) of the Act, income by way of interest or dividends derived by a Co-operative Society from its investments with any other Co-operative Society is entitled to deduction of the whole of such interest or dividend income. The claim of the Assessee was that Co-operative Bank is essentially a Co-operative Society and therefore deduction has to be allowed under Clause (d) of Sec.80P(2) of the Act. The Hon'ble Karnataka High Court followed the decision of the supreme Court in The Totgars Co-operative Sales Society Ltd. (supra) and held that interest earned from Schedule bank or cooperative bank is assessable under the head income from other sources and therefore the provisions of Sec.80P(2)(d)of the Act was not applicable to such interest income. It is thus clear that the source of funds out of which investments were made remained the same in AY 2007-08 to 2011-12 and in AY 1991-92 to 1999- 2000 decided by the Hon'ble Supreme Court. Therefore whether the source of funds were Assessee's own funds or out of liability was not subject matter of the decision of the Hon'ble Karnataka High Court in the decision cited by the learned DR. To this extent the decision of the Hon'ble Karnataka High Court in the case of Tumukur Merchants Souharda Co-operative Ltd. (supra) still holds good. Hence, on this aspect, the issue should be restored back to the AO for a fresh decision after examining the facts in the light of these judgment of the Hon'ble Apex Court rendered in the case of The Totgars Co-operative Sale Society Ltd. (supra) and of Hon'ble Karnataka high Court rendered in the case of Tumukur Merchants Souharda Co- operative Ltd. (supra).”
We find that in that case, the matter was restored back to the file of AO by the Tribunal for a fresh decision after examining the facts in the light of the judgment of Hon'ble Apex Court in the case of The Totgars Co-operative Sales Society Ltd. (supra) and of Hon'ble Karnataka High Court in the case of Tumukur Merchants Souharda Co-operative Ltd. (supra). Respectfully following this Tribunal order, in the present case also. we restore the matter back to the file of AO for fresh decision, after examining the facts of the present case in the light of these two judgments after providing adequate opportunity of being heard to the assessee.”
We also find that the Hon’ble High Court of Karnataka in the case of Pr. CIT v. Totgars Co-operative Sales Society, 392 ITR 74 (Karn) confirmed the order of Tribunal allowing deduction u/s. 80P(2)(d) of the Act on interest received from investments made in co-operative bank. This decision was, however, not followed in a subsequent DB judgment in the case of Pr. CIT v. Totgars Co-operative Sales Society, 395 ITR 611 [Karn]. In the later decision, the Hon’ble High Court held that interest income earned on deposits will be assessed under the head income from ‘other sources’ and therefore the entire deduction u/s. 80P(2)(a)(i) or 80P(2)(d) of the Act would not be available to the assessee.
The CIT(Appeals) has, however, in the impugned order proceeded under the assumption that in the later DB judgment of the Hon’ble High Court of Karnataka it has been laid down that deduction u/s. 80P(2)(d) is not available to interest income earned on deposits with co-operative banks. In our view, this conclusion of the CIT(Appeals) is not correct. We therefore, following the decision of the ITAT Bangalore Bench in the case of The Jayangar Co-operative Society Ltd. (supra), remand the question of allowing deduction u/s. 80P(2)(a)(i) as well as 80P(2)(d) of the Act to the AO for fresh consideration as per directions contained in the order of Tribunal in the case of The Jayangar Co-operative Society Ltd. (supra).
In the result, the appeal by the assessee is treated as allowed for statistical purposes.
Pronounced in the open court on this 31st day of August, 2020.